Insurance Costs Explained

As you consider which plan is right for you, think beyond your monthly premium when considering costs. By taking into account other plan elements that impact how much you will pay throughout the year, you can purchase a plan that best fits your health needs and budget. (Hint: The plan with the lowest monthly premium might not be the cheapest plan overall.)

Key elements that determine how much you pay

If you have insurance, there are two categories to remember when considering the cost of your healthcare: Your monthly premium and your out-of-pocket costs throughout the year.


Think of this as your monthly bill – the amount you must pay the insurance company, on-time, each month or you may lose coverage. You pay this even if you don’t use healthcare services that month. You can also think of it as a shared healthcare piggy bank. We all chip in every month, even when we are healthy, so the money is there when we need it. (Hint: If you choose a plan with a lower premium, expect to pay more for prescriptions and healthcare services.)

Depending on factors including your household size and income, you may qualify for financial help to lower the cost of your premiums.

Thanks to the Affordable Care Act, your gender and your current or past health needs (also known as pre-existing conditions) do NOT impact your premium amount. Your premium amount is based on age, location, tobacco use, individual vs. a family plan, and the coverage level of the plan (Bronze, Silver and Gold).

Out-of-pocket costs

Health insurance is designed to share costs with you in two ways – copayments and coinsurance. When these costs apply depends on the deductible and out-of-pocket maximum. Let’s explore them.

Let’s see how your health insurance plan details impact your out-of-pocket costs throughout the year. In the graphic below, we are using an example of a typical health insurance plan for a single person with a deductible of $2,500, out-of-pocket maximum of $7,350, and 30% coinsurance. (Note that the specific details will vary between plans.)

Deductible Phase

At the beginning of the plan year, you are in the Deductible Phase. For most plans, when you get a prescription or medical service, you will pay a copay at the time of service OR be billed for 100% of the full allowed amount, depending on your specific plan details. (Note: For Health Savings Account (HSA) plans, you will pay 100% until the deductible is met, and then any copays go into effect.)

Coinsurance Phase

Once you’ve “met your deductible” – for this example, paid $2,500 for covered healthcare services and prescriptions, NOT including copays – you enter the Coinsurance Phase. Your health insurance company will split the costs with you. You pay a percentage (30%, in this example) of a covered healthcare service or medication, and the insurance company pays the rest (70%, in this example). And copays continue.

Out-of-Pocket Maximum Phase

Once you’ve “met the out-of-pocket maximum” – for this example, paid $7,350 for covered healthcare services and prescriptions, including copays but NOT premiums or services that are not covered – you enter the final phase. Your health insurance company pays 100% of the costs of covered benefits until the end of December, then in January, you’ll start the process all over again.  

Keep in mind

  • Out-of-pocket costs are in addition to your premiums. Premiums do NOT count towards your deductible or out-of-pocket maximum.
  • Copays do NOT count towards your deductible, but they DO count towards your out-of-pocket maximum.
  • Services that are delivered by out-of-network providers or are not covered by your plan benefits, do NOT count towards your deductible or out-of-pocket maximum.
  • All plans cover many preventive services – check-ups, vaccinations, screenings for breast cancer, cholesterol, diabetes, and more – before you meet the deductible AND at no additional cost to you when delivered by a doctor or other provider in your plan’s network. This can help keep you healthy and save you money in the long run.

Coverage levels (or metal tiers)

Health plans are arranged into three levels to help you narrow your options based on your budget and health needs. The lower the premium, the higher the cost for care, and vice versa. Learn more about coverage levels

metal tiers for coverage

Download the Guide to Health Insurance Costs
Estimate your savings: You may be surprised!
6 questions to ask before you buy health insurance
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